The case is seen by many as a turf war between Sebi
and the outcome will be crucial in deciding how illegal money collection schemes are dealt with.
“This is more a case of ‘institutional conflict’. Although the Sebi
process and the IBC
process are both initiated by the aggrieved depositors, the final outcome under these two processes are not coaxial,” says Priyanka Devgan, counsel, Verus.
This particular case pertains to New Delhi-based HBN Dairies, which mobilised over Rs 1,100 crore by operating illegal CIS. Sebi
has attached the immovable properties of the company and is in the process of recovering money to pay off investors. However, given the delay, a group of investors moved NCLT, which has admitted insolvency petition against the company and ordered attachment of same assets already attached by Sebi.
“This case has the potential to result in boundaries being drawn up for NCLT
and other sectoral regulators. It also has the potential to render the Sebi process to deal with unregulated deposits infructuous,” adds Devgan.
Legal experts say institutional conflicts between NCLT, National Company Law Appellate Tribunal, other courts, and regulators are on the rise, which aren’t a healthy sign and the apex court should use this case to lay down guidelines to avoid regulatory overlap.
Most experts are of the view that giving the status of financial creditors to investors in Ponzi schemes could set a bad precedent.
“It will be a mistake to put contributors who have been victims of fraud in the same category as financial creditors. Their funds, technically, do not form the debtor’s estate, and so they stand apart,” says Ashwin Bishnoi, partner, Khaitan & Co.
“In the event it is settled that depositors shall be included in the definition of ‘financial creditors’, the provisions of IBC
can be invoked by such depositors in the case of CIS, which is regulated by the Sebi Act. And thus, there will be a total overlap of jurisdictions of IBC and the Sebi Act,” says Krishan.